by Mario Tuor, editor-in-chief of finance.swiss
October 25, 2023
Switzerland has high ambitions: the Alpine country at the heart of Europe wants to be one of the world’s leading locations for sustainable finance. The foundations are in place. Switzerland is a world leader in the management of cross-border assets. A new Swiss Stewardship Code is now to ensure that financial institutions can exert concrete influence on investors and credibly demonstrate sustainable investments.
A Swiss Stewardship Code for financial institutions is now in place, with the goal of encouraging active interaction with the companies in which they invest, as well as the exercise of shareholder rights at their annual general meetings. By doing so, institutional investors can make a significant contribution to achieving sustainability goals, the Swiss State Secretary for International Finance Daniela Stoffel said.
Last year, the Swiss government recommended that financial institutions and pension funds should be more transparent about the extent to which their engagement strategy and the exercise of their shareholder voting rights are consistent with their voluntary sustainability goals, such as reaching net zero by 2050. Financial players were also asked to disclose this type of information on their websites.
“By actively exercising investor voting rights and engaging in dialogue with companies in the investment portfolio, institutional investors such as insurers, pension funds and asset managers can make an important contribution to sustainability goals,”
Stoffel said during the Building Bridges Action Days held in Geneva in early October this year, giving a couple of examples.
“They can advocate for companies to have science-based and externally verified plans for transitioning to net zero by 2050. Or they can use a clearly defined escalation process to bring about changes in the management structures of companies, or exclude companies that are unwilling to make adjustments,”
Swiss financial sector goes a step further
Now two leading industry associations – Swiss Sustainable Finance (SSF) and the Asset Management Association Switzerland (AMAS) – have taken this initiative a step further and incorporated these federal recommendations into a Swiss Stewardship Code.
Sabine Döbeli, CEO of SSF, comments:
“There is increasing pressure on companies and investors to play their part in making a sustainable impact. With the new Stewardship Code, SSF and AMAS are helping Swiss financial players communicate their goals to companies and encourage them to adopt more sustainable business models and create long-term value.”
Adrian Schatzmann, CEO of AMAS, adds:
“From an investor’s perspective, stewardship protects and increases the long-term return on financial investments and is therefore a core element of asset managers’ fiduciary duty.”
Such a common approach is likely to wield considerable influence, particularly among insurers and pension funds. Not only did these non-bank financial institutions hold roughly a fifth of the Swiss financial sector’s assets in 2021. Their investment portfolios are also highly diversified with a long-term investment horizon. This enables them to effectively support the transition to a net zero economy in line with international biodiversity targets.
Transparency needed to avoid greenwashing
To avoid greenwashing – making false or misleading claims about a company’s impact on sustainability – it’s important that financial players who voluntarily sign up to sustainability targets be fully transparent with their clients about their ongoing engagement efforts. The financial institutions that adhere to the Swiss Stewardship Code will now show the extent to which their active engagement with the companies they invest in aims to achieve their defined sustainability targets. This is of particular importance for investments in companies whose operations are not yet aligned with sustainability objectives.
Tips for successful engagement
“Engagement with portfolio companies is often most promising when it is coordinated with other investors and in accordance with international best practices,”
Stoffel underlined in her remarks to Building Bridges – an event aiming at advancing sustainable finance in Switzerland and abroad by creating synergies between the financial industry, public authorities and international partners such as the United Nations.
Swiss Stewardship Code: Asset Management Association Switzerland | Swiss Stewardship Code (am-switzerland.ch)
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This post originally appeared on TechToday.